Business Ethics: Kant, Virtue, and the Nexus of Duty

This chapter briefly reviews some of the concepts necessary for an introductory course in business ethics. These include the concept of ethical motivation, the logical basis of ethics, and the concept of “the noble nature.” It also presents the fundamental business-related questions explored in this text.

The Western ethical tradition is rooted in ancient Greek philosophy, which developed both intuitionism and virtue ethics. The enlightenment age developed social contract theory, utilitarianism, and ultimately Kantian construction. All of these schools (approaches) play a role in examining and developing the ethics of business interactions and what we should consider as ethical norms for business. It is, of course, questionable whether this “Western ethical thought” sufficiently permeates business so that what we term as “evil” in business is adequately avoided.

Enlightenment philosophy (seventeenth and eighteenth century philosophy) led to democratic revolutions and ultimately commercial and economic reforms. At the height of this era, Immanuel Kant offered his categorical imperative as a process that reflects common thinking about methods for deriving practical moral maxims and duties. This process is shown here as relevant for managerial leadership and business efficiency. The role of reflective thought in establishing and maintaining these maxims is emphasized. The categorization of these maxims into their associated perfect and imperfect duties is reviewed so that absolute prohibitions (perfect duties) can be understood as distinctly different from those volitional duties (imperfect duties) that pursue wide objectives but with practical limitations. This latter category is shown to be particularly germane to effective modern management.

Virtue ethics is an ancient subject primarily established by Aristotle and the Stoics. The ancients considered that development of personal virtue was necessary to achieve a life of “contentment,” and this is certainly relevant for the lives of modern managers, and their business interactions. This chapter distinguishes between personal moral virtues, and ethical managerial decisions. It examines the question, “Might virtuous managers still make unethical decisions?” In addition, the set of virtues required of management to implement a program of “harmony in pursuit of a moral community” is reviewed. An explanation of how this program establishes constraints on the pursuit of shareholder wealth (the profit motive) is also reviewed.

Avoidance of well established ethical business-codes currently continues as a prime societal problem. Examples of proper business codes of ethics, ones that are consistent with Kant’s (1996) categorical imperative, are reviewed, but these codes have a tendency to be ignored for reasons inherent to competitive firms. These inherent reasons are examined in the context of Arendt’s (Thinking and Moral Considerations, 1971; Responsibility and Judgment, 2003) theory of why ethical codes are abandoned. Svendsen’s Philosophy of Evil (2001) is shown to provide insights relevant for preserving these codes. In addition, the evidence from recent experimental psychology is shown to reinforce these devolution theories posed by Arendt and Svendsen.

The nexus of imperfect managerial-duty is defined as management’s collection of volitional attitudes and actions in pursuit of a moral purpose, but that have practical limits. This describes business behavior towards building affable and virtuous relations, maintaining reasoned social- discourse, and performing the due diligence necessary for making knowledgeable business decisions. A theory of the development and extent of the limits of these imperfect managerial duties is presented here, a theory that in part explains the activities and personnel included under the firm’s umbrella. As a result, the nexus of imperfect duty is shown to complement the perfect duty-based nexus-of-contracts theory of the firm. The existence of flexible tradeoffs involving these imperfect duties, tradeoffs not easily amenable in contractual arrangements whether explicit or implicit, is shown to be one of the advantages of imperfect duty for developing business relations. As a result, the pursuit of shareholder wealth is not subject to contracting, i.e. it is not a perfect duty. Shareholder wealth pursuit emerges from the nexus of imperfect duty.

It is argued here that business firms can and do provide an incubator that enables the Aristotelian category of friendships of advantage to develop into friendships of virtue. This contradicts other literature that views acquaintances of utility as the business norm, and expresses pessimism concerning more advanced virtuous development of friendship within the business firm. It is argued here, however, that this virtuous development is integral to the Kantian social aim of pursuing a moral community, an aim which declares the appropriate moral motivation for business, and that certainly should incorporate a role for developing virtuous relations as a component of that pursuit. An atmosphere that encourages the development of relations of virtue is feasible, exists in real business, and is optimal for pursuit of moral business communities.

O’Neill posed some broad Kantian-derived principles applicable to society’s discourse. They are reviewed and utilized here as especially relevant for reasoned managerial discourse. Applications to the politically sensitive issues of globalism, diversity (racism, sexism, and other problems), the company’s control system (responsibility assignment, performance evaluation, and rewards systems), and environmental degradation and restoration, are provided. The latter is examined in detail as a significant issue capable of benefitting from these principles of social discourse.

The pursuit of shareholder wealth is not a contractual obligation of management, and therefore not a perfect duty. It is an imperfect duty that has practical limits that result from its tradeoffs with other imperfect duties of due diligence. These imperfect duties of managerial due diligence are illustrated here through explanations of basic financial decisions: capital budgeting (the selection of long-term projects of the firm), capital structure (the selection of finance sources), and liquidity management. The ethical foundations of these imperfect duties of due diligence are drawn from Rawls’ criteria for “competent moral judges” and “considered moral judgements.” These are shown to depend on the imperfect duties to gather and utilize relevant knowledge as explained in Chapters “The Moral Construction Process and Duties” and “Moral Virtues and Ethical Decisions”.

Through compensation arrangements, corporate managers are typically bonded to the interests of shareholders. As a result, managers have a conflict-of-interest in paternalistically deciding the compensations to and opportunities for other non-owner stakeholders (employees, suppliers and some others). An appropriate normative stakeholder-theory should therefore center on notions of fair negotiations with these stakeholders where management openly acts as agents of the shareholders. These related management agreements should be viewed as resulting from fair bargaining. Consequently, an applicable set of Kantian derived rules for fair negotiations are posed here. Their appropriateness to both indirect market-based negotiation and to direct negotiation with stakeholders is examined.

The ancient philosophical principles that define and justify notions of public action, political freedom, and the exercise of public authority, especially as explored by Arendt, are shown to extend to an American frontier-cultural foundation for the entrepreneurial ethos. It is argued here that the initiation of, and development of business organizations should be properly viewed as a category of action that is a modern substitute for the ancient civic activity (involvement in the polis). This differs from the routine “management as maintenance” approach with its lack of creative action. But both entrepreneurial and routine management activity can also be motivated by a desire to achieve social separation through wealth. As a result, one of the two classic motivations for ethical behavior, namely the fear of social ostracism (the other being living with the inner dialogue of conscience), is shown to be weakened by an entrepreneurial and/or managerial culture that is motivated to achieve a sort of “lordship” to use the description of Joseph Schumpeter. Recent relevant psychological experimental studies are also reviewed. These are shown to reinforce this notion of ethical “weakening” resulting from social separation by wealth.

The social benefits derived from competitive markets certainly depend upon participants conforming to generally accepted notions of moral duty. These notions include perfect duties such as those against fraud, deception and coercion, and also imperfect duties such as those that favor beneficence but with practical limits. These duties are examined here where product, capital and internal labor markets are shown to be capable of imposing conformance through both formal and informally-organized boycotts. A categorization of classic and recent boycotts into those motivated by (i) sympathy for the suffering of others, and (ii) outrage over violations of generally accepted social norms is provided. It is argued that the former motivation seeks to establish new norms, and the latter seeks to enforce existing norms. Through this exploration, a resolution of the so called “Adam Smith problem” concerning the morality of the invisible hand is offered.

This chapter further examines the necessary and useful distinctions between perfect and imperfect duties. In this context, it introduces and examines propositions of (i) mutual dependence, (ii) the necessity of obtaining and applying knowledge of our environmental impacts, and (iii) the global environmental community. The chapter then examines the duty-based discourse criteria of O’Neill, but in the context of environmental considerations. This material is shown to be the basis of our environmental coalitions and their involvement in our “reasoned social discourse” and its resulting resolutions. This chapter also reviews the environmental applications of the Rawlsian criteria for “competent moral judges” and “considered moral judgments.” From these criteria, we compose the requirements for “fair and reasoned environmental discourse and decisions.”

The “specialness” of our involvements in environmental organizations result from our pursuit of collective imperfect duty. This is reviewed here with reference to some recent contributions. These involvements are explained as necessary for society’s processes and environmental decisions to be “fair and reasoned.” As inputs to these processes, the inspirational aspects of the “sacredness of nature,” as expressed in the classic American environmental literature of Emerson, Thoreau, Muir, Leopold, and Douglas are examined as a motivating foundation for natural preservation in the public domain. These inspirational and sacred aspects support the notion of the “intrinsic value of nature.”

The various biases that might inhibit our reasoned business-related environmental discourse are reviewed. In addition, since our reasoned social discourse with respect to environmental policies can and is often interrupted by the obfuscations of business, two examples of attempted obfuscation are reviewed here: the coal industry’s rhetoric of “clean coal, and agriculture’s rhetoric concerning “concentrated animal feeding operations. The example of the North Atlantic Fishery depletion is reviewed. The classic Storm King legal precedent is also reviewed to provide an example of non-servile citizen involvement in environmental restoration.